The Competition and Markets Authority (CMA) has launched an investigation into the proposed Vodafone Three Merger. The deal, announced in June 2023, would create the UK’s largest mobile network. Having received feedback from stakeholders about the merger, the CMA has now initiated a Phase 1 investigation over the next 40 working days to determine whether it would lead to a ‘substantial lessening of competition.’
“This deal would bring together two of the major players in the UK telecommunications market, which is critical to millions of everyday customers, businesses and the wider economy,” said the CMA’s chief executive, Sarah Cardell. “The CMA will assess how this tie-up between rival networks could impact competition before deciding next steps.”
Vodafone Three merger could create the UK’s largest mobile network
Though first announced in June of last year, a merger between Vodafone and Three was first mooted as far back as October 2022. At the time it was, as telecoms analyst Paolo Pescatore told Tech Monitor at the time, a “marriage of convenience,” allowing both firms’ parent companies to create a network with 27 million UK customers – more than their nearest rivals, Virgin Media’s O2 and BT’s EE. Any Vodafone Three merger would likely also accelerate the latter’s rollout of 5G services, said Pescatore.
“Ultimately the number of mobile players will reduce, limiting consumer choice,” he explained. “Scale is key to help lower costs and improve margins. Convergence still remains the Achilles heel if this does get over the line.”
Even in October 2022, however, it was clear that the CMA would almost certainly launch its own inquiry into the merger. Analysts predicted that the competition watchdog would take a dim view of the deal after it was finally announced the following June. The merger would “face a major challenge to win approval,” CCS Insight’s Kester Mann told Tech Monitor, with the case undermined by the decision at the time by both Vodafone and Three to raise their tariffs by 14.4% during a cost of living crisis. As such, said Mann, “the prospect the deal leads to higher prices will be a major concern for the CMA.”
CMA inquiry into Vodafone Three merger began in autumn 2023
Predictions about the CMA’s concern were justified. In October 2023, the regulator launched a preliminary call for views from third parties about the merger. After having assessed these submissions, the CMA’s formal Phase 1 investigation will be accompanied by a second call for industry comment. The results of both will determine whether a more in-depth Phase 2 investigation is required.
The launch of a CMA investigation into the Vodafone Three merger is no great surprise, says Robert Pritchard, principal analyst at GlobalData. Indeed, the regulator may discover that the deal is beneficial for competition in the UK mobile network market, argues Pritchard. “In the long term, the market would likely benefit from having three strong players competing rather than two strong providers and two weaker ones,” he told Tech Monitor. “Most regulators in Europe [agree] that three competitors result in sufficient competition – and it’s not like Ofcom would not be monitoring the market.”
Market investigations must be concluded within 18 months of an initial reference being made, though this can be extended by six months under certain circumstances. At the end of this process, the CMA may choose to block the Vodafone Three merger or mandate structural changes in the deal before it can proceed. Both actions were taken by the competition watchdog in response to Microsoft’s proposed acquisition of Activision, which it first blocked before waving through after the former business ceded cloud gaming rights to rival Ubisoft.